CHART: China vs copper – much better than you think
It's all about the base
China's economic growth is on track to fall to a 24-year low in 2014 and is set to decelerate again next year.
Given its widespread use in transportation, manufacturing and construction the copper price is sensitive to any economic slowdown.
Coupled with the fact that China consumes 45% of the world's copper and you'd expect disaster for the red metal.
When you are fixated on rates of change (guilty as charged) it's easy to lose sight of absolute numbers, though.
While China's GDP growth is expected to slow to 7% in 2015, which is indeed the slowest pace since 1990, the country would be adding some $700 billion to gross domestic product (and that’s excluding Hong Kong).
That's greater than the size of mainland China’s entire economy in 1994, when growth rates peaked at a stunning 30% year-on-year. $700 billion is also bigger than Switzerland’s economy and worth almost 2 South Africas and 4 New Zealands.
A new research note, reassuring titled Time to turn positive on base metals, by Caroline Baine, senior commodities economist at Capital Economics, features a graph that shows China's copper consumption growth in relation to physical copper usage.
It highlights the fact that like GDP, copper consumption in the country is now coming from a much higher base and points out that a 9% increase in copper consumption in 2004 resulted in a 280,000 tonne increase in usage, while the 9% jump in 2013 represented nearly 800,000 tonnes of additional copper.
Even better, copper consumption growth is outpacing overall economic growth and according to the independent research house the latest data suggest that China’s apparent copper consumption will have grown by a robust 10% this year and demand indicators point to strengthening going into 2015.
The house view at Capital Economics for the copper price is one of the more bullish predictions: $7,200 a tonne ($3.26 a pound) at the end of next year compared to $6,300 a tonne ($2.85 a pound) today.